Active managers change 401(k) sales divisions

Schroders, Cohen & Steers Inc. and ICMA-RC are examples of firms that have ramped up their investment teams as others have restructured or scaled back

Feb 26, 2019 @ 5:34 pm

By Greg Iacurci

Several active asset managers are changing how they distribute funds in the 401(k) market, with some restructuring or scaling back their sales forces amid a challenging environment of fee compression and a flight to passive management, while others are taking the seemingly rare step of ramping up their retirement teams.

Schroders, Cohen & Steers Inc. and ICMA-RC, for example, have grown their footprints in the market by expanding their salesforces dedicated to DC plans and advisers.

Meanwhile, firms such as Thornburg Investment Management and Mainstay Investments have laid off some retirement sales associates, while others such as AllianceBernstein have reorganized by merging their retirement and retail groups together.

"Given the growth of DC, asset managers want to be sure they're focused on it and have a path to success, but it's extremely competitive," said Jennifer DeLong, head of defined contribution at AllianceBernstein.

Schroders this month hired Joel Schiffman as head of U.S. defined contribution and insurance sales, a new position at the firm meant to build out the firm's retirement-plan distribution. Marc Brookman, deputy CEO of North America, was hired last year; Mr. Brookman had previously overseen Morgan Stanley's retirement group within its wealth management business.

Schroders, which sub-advises funds for Hartford Funds, plans to add to its DC sales team, launch more co-branded products with the firm for the retirement market, and ramp up its marketing efforts, Mr. Brookman said.

ICMA-RC, which markets funds under the Vantagepoint brand, has grown its client-facing DC investment sales team from scratch over the past year and a half, and the team now has six people. Craig Lombardi was hired two years ago as the firm's managing vice president of DCIO — industry parlance for defined-contribution investment only — to oversee the growth effort.

The firm manages roughly $28.5 billion, around 40% of which is held in stable value funds. ICMA-RC has historically distributed funds through public-sector retirement plans (457 and 401(a) plans) but is shifting to distribute funds in 401(k) plans, too.

"Ten to 15 years ago, you'd take your most popular retail mutual fund and bring it into the DCIO space and just sell it because it was popular," Mr. Lombardi said. "The market has changed."

Cohen & Steers, an active manager focused on real estate and real assets, has assembled a team of four retirement specialists since Charlie Wenzel, head of wealth management defined contribution, joined the firm three years ago. That team complements the firm's 19 generalist wholesalers calling on broker-dealers and registered investment advisers.

However, while some teams are growing a specialized, separate retirement sales group, others are re-evaluating.

"A lot of companies are trimming back on their DC sales force," said Mr. Brookman.

Large flows to target-date funds and index funds, as well as a decrease in asset management fees, have eaten into profit margins for many active managers, especially those whose parent companies don't own a record keeper to help distribute proprietary investments, experts said.

"If you don't have a significant index or target-date franchise or you don't own a record keeper, it's a very tough market," said Fred Barstein, founder and CEO of The Retirement Advisor University.

One trend that's played out, experts said, is integrating separate, specialized retirement sales groups with retail-focused groups.

Thornburg, for example, recently ditched a strategy of having dedicated DCIO business development officers, and eliminated three positions as a result, according to someone familiar with the matter. The firm's intermediary, institutional and strategic relationship teams absorbed many of the retirement team's responsibilities, the source said.

Carter Sims, Thornburg's head of global distribution, made the move in order to leverage the firm's entire distribution team and said it's "in line with industry trends and recent actions by other asset managers."

Mainstay Investments also laid off three DCIO wholesalers in 2017, citing a dramatic change in the asset management landscape.

AllianceBernstein has also reorganized its business, merging DC-plan sales with its retail group. It hasn't eliminated positions as a result of the shift, and has been able to grow DC sales year-over-year for the past three years because of the new strategy, Ms. DeLong said. She declined to quantify the sales figures.

Further, a restructuring or reduction in head count among DC salespeople doesn't necessarily mean firms are any less dedicated to the market as they had been, said Ms. DeLong, speaking broadly about the asset management market.

Allianz Global Investors also saw the recent departure of its former retirement head, Glenn Dial, and the firm's retirement efforts will be co-led by Andy Wilmot, head of the financial institutions group, and managing director Jen Evanko going forward. The retirement channel remains a "key focus" for the firm, according to a spokeswoman.

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